By Emma Nitzsche
On Tuesday, July 27, the subcommittee on Economic Policy hosted a hybrid hearing titled: “Protecting Student Loan Borrowers and the Economy in Upcoming Transitions.” Sen. Elizabeth Warren (D-MA) served as the chairwoman of the event. In her opening statement, Sen. Warren emphasized the failures of the Pennsylvania Higher Education Assistance Agency (PHEAA) and argued the importance of extending the pause on student loan payments.
President Joe Biden’s coronavirus relief package, The American Rescue Plan Act of 2021, extended the pause of federal student loan repayment. The legislation, along with the CARES Act, placed a hold on federal student loan repayment for over 18 months. In addition to the pause on student loans, PHEAA announced they would be leaving the federal student loan sector. As the agency leaves, legislators need to consider how to transfer the nine million borrowers who utilized PHEAA for their repayment plans.
Sen. Warren and the other witnesses saw the transfer as a rare opportunity for a fresh start–especially for public service members who have been paying off their loans for several years without any relief. Sen. Warren noted the destruction caused by PHEAA and called the transition “the best chance in years to build strong guard rails into student loan servicing contracts.”
Witnesses who testified at the hearing included the Attorney General for New York, The Honorable Letitia James, and Randi Weingarten, the President of the American Federation of Teachers, Persis Yu, the Director of the Student Loan Borrower Assistance Project and the National Consumer Law Center, served as the final witness.
James discussed her office’s experience protecting and defending student loan borrowers who were harmed by the misconduct of student loan servicers. In 2019, the State of New York filed a lawsuit against PHEAA for its mismanagement of the Public Service Loan Forgiveness program.
“Our lawsuit alleges that PHEAA, operating under the name FedLoan Servicing, failed these hardworking people by not accurately counting PSLF-qualifying payments, failing to provide explanations of their determinations, and failing to inform borrowers of their options to challenge FedLoan’s mistakes. FedLoan’s inability to properly administer the PSLF program contributed to the shockingly high rejection rate of PSLF forgiveness applications. When we filed our lawsuit, more than 98 percent of applications were rejected as ineligible for forgiveness,” said James.
Sen. Chris Van Hollen (D-MD) asked the Attorney General how Biden can supply remedy for borrowers wronged by the PSLF program. James emphasized the importance of placing the interest of the borrower above the needs of the loan service. This means implementing mechanisms for borrowers to appeal atrocities and penalizing servicers who violate state and federal law. Additionally, because so many borrowers faced instability during the pandemic, loan services need to provide detailed and accurate information about how much borrowers must pay when their career and living situations change due to the pandemic.
Weingarten presented her testimony second. As the President of the American Federation of Teachers, Weingarten voiced her concerns over the news that PHEAA will no longer service student loans. According to her research, 78% of teachers reported releasing frequent job-related stress as the pandemic relief programs conclude.
“The problem is clear, and the solution is too: The administration should cancel debt for all public service workers who have made payments on their federal loans for a decade and should cancel up to $50,000 of debt per borrower,” said Weingarten.
Sen. Tina Smith (D-MN) asked Weingarten if she could elaborate on the specific challenges teachers face regarding the public loan forgiveness program and how the failures of those programs impact the recruitment of teachers. According to Weingarten, the crippling loans turn capable and gifted potential teachers away from the profession.
Additionally, Weingarten argued that because the PSLF program has failed to repay the loans of 98 percent of borrowers, teachers are given a false promise of future financial stability. The program makes teachers believe that if they commit to public service and pay their loans for ten years, then the government will forgive their student loans altogether. But by failing to back up their promise, the government blatantly disrespects teachers and other individuals in the public service arena.
Yu spoke on the devastating consequences of the PHEAA program and how loan transfers result in massive confusion for borrowers. Loan services have consistently failed to make payment plans available to borrowers, and few students can seek redress when servicers violate their rights. As PHEAA is replaced, Yu urges more government accountability for the loan services so that borrowers have a completely accurate record and know exactly how much they owe.
“It is imperative that the Department of Education protect the interests of the most vulnerable student loan borrowers as it decides how and when to restart repayment while also transferring roughly ten million borrowers’ loans,” said Yu.
Sen. Jon Osoff (D-GA) reaffirmed Yu’s testimony and used his question time to emphasize the importance of free public college tuition. According to Sen. Ossoff and Yu, free tuition would allow more diversity in the education sector and encourage more students to pursue a major interest instead of worrying about how much money they will make in a career.
Regarding the PSLF program, Sen. Warren asked Yu why so many public servants fail to have complete tuition forgiveness. Yu responded that the borrowers are not at fault for the atrocities within the PSLF program. The program is a “labyrinth where a borrower could be wrong on one payment, and it would put them back at the beginning again.” Although the program claims to be clear and direct, there are many different areas where a borrower could make a mistake with their payment, forcing them to restart the clock on the ten-year period of payments.
Sen. Warren concluded the event by restating her dissatisfaction with PHEAA and her enjoyment in its termination. However, she praised the Biden administration and noted that the President has the power to reverse some of the adverse effects from PHEAA by extending the pandemic loan relief program and forgiving $50,000 of student loan debt per borrower.
A full video of the hearing can be found here.